Supernova Company Had the Following Summarized Balance Sheet on December

question 6

Essay

Supernova Company had the following summarized balance sheet on December 31 of the current year:
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$\begin{array}{lr}\text { Assets }\\\text { Accounts receivable } & \$ 350,000 \\\text { Inventory } & 450,000 \\\text { Property and plant (net) } & \$ \underline{600,000} \\\quad \text { Total } & \$ \underline{1,400,000}\\\\\text { Liabilities and Equity }\\ \text { Notes payable } & \$ 600,000 \\\text { Common stock, } \$ 5 \text { par } & 300,000 \\\text { Paid-in capital in excess of par } & 400,000 \\\text { Retained earnings } & 100,000 \\\quad \text { Total } & \$ \underline{1,400,000}\end{array}$
The fair value of the inventory and property and plant is $600,000 and $850,000, respectively.
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Assume that Redstar Corporation exchanges 75,000 of its $3 par value shares of common stock, when the fair price is $20 per share, for 100% of the common stock of Supernova Company.Redstar incurred acquisition costs of $5,000 and stock issuance costs of $5,000.
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Required:
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a.What journal entries will Redstar Corporation record for the investment in Supernova and issuance of stock?
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b.Prepare a supporting value analysis and determination and distribution of excess schedule
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c.Prepare Redstar's elimination and adjustment entry for the acquisition of Supernova.

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Definitions:

Direct Expense

A cost that can be directly traced to producing specific goods or services, such as raw materials and labor.

Profit Center

A segment of a business that is responsible for generating its own revenue and profit.

Manager's Performance

Evaluation of how effectively a manager meets objectives and achieves goals.

Support Department Allocation Rate

A rate used to charge internal support department costs to producing departments based on usage or benefit derived.